If you have received a tax investigation letter from HMRC what should you do?

In the first instance, you should always read the letter carefully and if you are unsure what it means, or if it is a complicated request for information it is a good idea to get expert, specialist advice straight away. Any investigation into your tax affairs is very likely to be disruptive to your business and costly, especially if you don’t get the right help. We would caution against replying without seeking advice, however tempting it may be.

At Barnes Roffe our expert team will be able to support you in all of HMRC’s investigatory areas.

For a free, confidential chat about any HMRC enquiry, or tax investigation contact our Barnes Roffe’s specialist tax team without delay.

What triggers an Investigation?

Compliance checks are usually triggered when figures submitted on a return appear to be wrong for some reason. For example, when a business with a large turnover declares a very small amount of tax, or on the other end of the scale, if a small company suddenly makes a large claim for VAT. However, there are many other reasons why a business can become under investigation:

• HMRC receives a tip-off;
• Your income falls dramatically, costs increase significantly or there are inconsistencies between different returns;
• Your costs are unusually high compared to the industry norm;
• Your business is in a high-risk industry, for example one that commonly takes cash payments;
• You often file your returns late;
• Your standard of living appears to be inconsistent with your declared level of income; or
• You are unlucky enough to be in a sector that HMRC has decided to target.

Which business taxes do HMRC investigate?

HMRC investigations are not limited to income tax and can also include

• Corporation Tax
• VAT
• Capital Gains Tax
• Inheritance tax
• National Insurance
• Stamp Duty Land Tax
• PAYE and Construction Industry Scheme deductions

Main types of HMRC investigation

• A Full Enquiry

This may occur when HMRC believes there is a significant risk of error in a tax return and a review of all records will be undertaken. This can include personal financial records of Directors/Business owners as well as business records, and in such circumstances, it is important to receive professional guidance as to what HMRC can legitimately request.

• An Aspect Enquiry

In this instance HMRC wants more information about a particular part (or parts) of a return or the accounts on which it is based. Although this is often due to a genuine mistake rather than a deliberate attempt to evade tax, it is still important that you don’t take this type of enquiry lightly and treat it just as seriously as a full enquiry.

• A Random Enquiry?

HMRC maintain that they select cases for enquiry purely at random. Whilst this may be factually correct, HMRC has at its disposal comprehensive information sources and sophisticated statistical analysis techniques to scrutinise financial information included in submitted returns. So, although HMRC may occasionally pick a selection of businesses to investigate completely at random, you should never assume this applies to you. Any enquiry should be taken seriously.

How far back can HMRC go?

This is a complex question. The usual answer for self-assessment returns is one year from the date of filing, although HMRC can use their powers of “discovery” to raise assessments for earlier periods or request information if they have grounds for suspecting an underpayment of tax. Their entitlement to do this should always be examined carefully so that you should always seek professional advice if you are asked for information or receive an assessment in relation to a year that is supposedly “closed”. Where returns are inaccurate through carelessness, generally HMRC has 6 years to raise assessments.

If HMRC writes to you stating that they are doing so under “Code of Practice 9” they can go back up to 20 years. These cases are very serious because they involve HMRC alleging deliberate taxpayer behaviour involving fraud. If you receive a code of practice 9 notice you should get specialist help immediately. Barnes Roffe has extensive experience in this complex area.

What happens once HMRC have decided to investigate?

Once HMRC have decided to conduct a tax investigation, you will be required to provide any information they have requested, unless you can demonstrate that the information is not “reasonably required” for the purposes of the enquiry. In many cases the anomaly will have been caused by a minor discrepancy and the case can be closed relatively quickly. Occasionally however, HMRC may request further information and wish to undertake a more detailed investigation.

What happens next will depend on what HMRC finds. They may prosecute in cases of deliberate or fraudulent tax evasion, particularly in cases where large amounts of tax are at stake. Indeed, it is possible to go to prison for tax offences although HMRC will usually seek civil penalties. In fact, the code of practice 9 procedure mentioned above is specifically aimed at giving taxpayers protection from prosecution subject to their making a full disclosure of past irregularities and agreeing to make good the tax.

Some of the most common outcomes and solutions include:

• Underpaid tax

You will be required to pay any tax owed within 30 days, with interest added. You may also be charged a penalty unless HMRC determine that the error was made despite taking reasonable care. If an underpayment arose because of a careless error, penalties can often be suspended (and not paid at all) if HMRC can agree specific suspension conditions and these are adhered to by the taxpayer for a prescribed period of time. HMRC likes to insist that there are no appropriate suspension conditions in particular circumstances, but often they can be persuaded otherwise.

• Overpaid tax

You will receive a tax rebate with interest.

• Penalties Not Suspended

If HMRC conclude there was deliberate behaviour on the part of the taxpayer, they will charge a penalty based on the underpaid tax and may escalate the case to criminal status. If this happens, the amount of any penalty will depend on such factors as why you underpaid, the seriousness of the matter and the amount of the liability involved, how quickly you told HMRC about any mistakes, whether this was prompted by HMRC or volunteered by you and your level of co-operation throughout the enquiry. Similar factors apply where a penalty is levied for careless behaviour in circumstances where HMRC cannot agree suspension conditions (see above).

How long will a tax investigation take?

Some tax investigations finish with one letter, other investigations can go on for months or even years, with HMRC asking for more and more information.

How do I know that the investigation is over?

This will be officially marked by either a closure notice being issued, or by agreeing a contract settlement.

• Closure notices can include a penalty notice or an assessment and are usually received in the form of a letter detailing exactly what the final position is.
• A contract settlement is a legally binding agreement between HMRC and the taxpayer. The taxpayer agrees to pay the money and HMRC agrees not to use its powers to recover the money.

The good news is that once a return has been investigated, it cannot usually be investigated again.

Once a closure notice has been issued, if you do not agree with HMRC’s findings you can usually appeal HMRC’s decision to the Tribunal. However, this is a costly process and not one to be undertaken lightly.

Need Advice?

At Barnes Roffe we offer a comprehensive range of tax investigations services for those facing an HMRC enquiry. If you have any questions or would benefit from impartial, confidential advice, please get in touch with our experienced tax investigation team today.

Income tax is exactly as it sounds, a ‘tax on your income’. However, not all income is taxable and even then you are only taxed when you earn above certain levels.

What is a taxable income?

Income tax applies to: earnings from employment, earnings from self-employment, receipts from most pension schemes (including state, company and personal), interest generated on most savings accounts, income from shares, rental income and income paid to you from a trust.

Essentially you can and will be taxed on almost everything you earn that is above your personal allowance.

How can we help?

At Barnes Roffe our team of tax accountants can help you to reduce the amount of income tax that is payable to the Government and keep your earnings where they belong – with you!

We are much more than your average accountancy firm. Through our commitment to providing you with the latest tax advice, support and industry knowledge, our tax consultants can ensure that you pay ONLY what you are liable for.

Contact our team today and let us help you to make understanding tax even simpler.

Losing a family member is never easy, and the last thing you will want to think about is whether or not you are liable for paying inheritance tax. However, it is essential that you check so that you are aware of your rights and can prepare your family for the future ahead.

What is inheritance tax?

Inheritance tax is a tax levied on the transfer of an individual’s estate on his/her death to non-exempt beneficiaries (subject to a nil rate band).

Inheritance Tax is usually paid on a property when somebody dies, although it is also sometimes payable on trusts and gifts which are made within 7 years of the individual’s death.

Most estates don’t have to pay inheritance tax, as they fall within the “nil rate band”. As long as your estate’s worth is not above £325,000 (gifts and trusts included) then you won’t have to pay 40% inheritance tax on any sums exceeding this threshold.

However, if you think your estate may be liable to inheritance tax on your death it is important to plan in advance so your tax liability will not be greater than it should be. There are many opportunities for tax efficient planning, if you put them in place in good time.

We can help you to alleviate the stress of worrying about the future and provide you with the tax advice you need.

All too often, people put off estate planning. This is understandable as, it requires you to consider what will happen when your life is over, hardly something most of us rush to contemplate. Consequently, estate planning often becomes a do-it-tomorrow task.

When it suddenly becomes all-important, it might be too late. After all, accidents and sudden illnesses – such as Covid-19 – can and do happen. This guide will help you prepare effective plans that will help ensure you control what happens to your estate.

Click the image (or here) to download our guide.

What is Probate?

Probate is the official process of administering the estate of a person who has died and ensuring its distribution to those who will inherit, after discharging any debts and liabilities whilst also ensuring that relevant taxes are calculated and paid. Some estates can be very complicated, in which case having a probate specialist to advise you and make sure that all matters are resolved in accordance with the law, is essential.

How our specialists at Barnes Roffe can help you work through Probate

When a family member or close friend dies, it is not only upsetting but can often become even more stressful when trying to deal with all the complex legal and administrative issues that require urgent attention. Should the deceased’s personal representatives (executors or administrators) decide they do not want the burden of undertaking the administration of the probate process they will need to engage the services of a suitably qualified professional such as Barnes Roffe.

As probate and inheritance tax go hand in hand, as accountants, Barnes Roffe is fully qualified and has the specialist knowledge and experience needed to tie up all probate matters as efficiently and painlessly as possible, whilst also advising on how best to minimise the Estate’s liability to taxes.

To sum up, we can help remove the stress and make this complex process simpler for you by:

• Applying for the Grant of Representation
• Researching and assessing the value of the deceased’s Estate
• Preparing the estate accounts;
• Taking care of all the legal paperwork;
• Calculating the tax position to the date of death and for the period of administration of the estate;
• Completing inheritance tax calculations and agreeing the inheritance tax liability with HMRC;
• Obtaining grant of probate;
• Gathering assets and paying creditors and beneficiaries;
• Advising beneficiaries and executors of the tax implications connected with selling any assets;
• Preparing tax returns for personal representatives;
• Advising on the preparation of instruments of variation (to vary the terms of the will or intestacy).

What do we do when we are appointed act?

Once we are appointed to act our initial work will be to: -

• Review the will (and any codicils) and legacies to ensure they are valid and prepare any necessary affidavits;
• Ascertain who the beneficiaries are;
• Identify the composition of the estate* and ascertain whether a grant is needed;
• Send notification of death to financial institutions*; and,
• Value the estate. Where third parties are required, these will need to be commissioned. We are able to value assets such as private company shares.

The elements indicated * may be predominantly carried out by the executors in order to reduce costs.

Once we have been able to ascertain and schedule the various elements of the estate, we move to the application process.

There are 2 stages to the application process with which we can assist you:

• Complete an inheritance tax form – The IHT “Account” will schedule how much the estate is worth including property, shares, goods and chattels etc. The outcome of this valuation decides how much tax is liable to be paid on the estate.  At this stage it is important to identify all the exemptions and relief that are available to the estate. The tax owed must be paid before you can apply for the Grant of Representation.
• Complete the Probate Application Form and file the application online.  As HMRC has to confirm the value of the estate for IHT purposes there is usually around a six -week delay between the start of the first stage and the submission of the Probate Application.  How long it takes to get a grant after application varies with the waiting times in the Probate office but on average takes 6 to 10 weeks.

Administering the Estate – What happens now?

Once the Grant of Representation has been granted our involvement can cease if the executors wish to collect in and distribute the estate themselves.  If we are appointed to carry out the administration of the estate we will send a copy to the deceased’s asset holders, such as banks and building societies etc. and we can assist the executors in liquidating the deceased’s assets. This will provide funds to clear debts and pay any additional inheritance tax, income tax, or capital gains tax arising from the estate.

It is also important to give notice to potential creditors by placing an advert in the deceased’s local paper and in the London Gazette after which any further potential claimants have a fixed time of 2 months and one day to make a claim.

Preparing Estate Accounts – who gets what!

Once all claims on the estate have been investigated and all debts and taxes have been paid, we will help you distribute the estate assets to the beneficiaries as identified in the will, or by state of the law if there isn’t a will. All beneficiaries should sign a discharge form to confirm receipt of their assets or funds. Residuary beneficiaries will normally sign the estate accounts, that we will prepare for you, to confirm that they are happy to accept the amount left to them once all other payments have been made and confirm that they have no further call on the estate.

Why Choose Barnes Roffe rather than a Probate Solicitor?

• For Existing Clients – a lot of the work is already done!

We will already know a considerable amount about our client’s financial circumstances. For instance, we may have prepared their annual accounts and/or tax returns; be aware of their business and financial affairs and have a good understanding of the family situation. All of this helps the probate process enormously.

Most importantly, we will already have details of some, if not all, of their finances, assets and business dealings. This will save lots of time and money when it comes to preparing the necessary paperwork for the Probate office and HMRC.

• Not an Existing Client?

Probate and estate administration is essentially an accounting and taxation exercise and as accountants experienced in probate, we have all the expertise to tie up all probate matters as efficiently and painlessly as possible, whilst also advising on ways to minimize the Estate’s liability to taxes.  Whilst a probate solicitor would normally still need to utilise the services of an accountant.

• Competitive Pricing

Traditionally solicitors and banks charge a percentage of the value of the estate to carry out any probate work. This can be as high as 4%. Furthermore, the time it takes them to gather all the necessary financial and tax related information can prolong the process.

At Barnes Roffe we have the specialist financial knowledge which means that we can carry out probate quickly and succinctly, keeping costs down.

It is difficult to estimate fees in abstract but as an indication: -

• If we were simply preparing IHT returns and a probate application for an estate of around £2M based on complete information from executors and the estate is not overly complex or fees are likely to be in the order of £2,500 plus VAT. In addition, the probate office fees would be disbursed and would be recoverable from the estate. It would likely take around a month to prepare the return and the application and the time from appointment to grant is likely to be four to five months taking account time for HMRC and the Probate Office to process the submissions to them.
• In the same case if we were to write to financial institutions for information and perhaps obtain a property valuation in order to value the estate this would likely take around a further three months and cost a further £2,500 plus VAT. In addition, we may have to pay for third party valuations which would be a disbursement and recoverable from the estate.
• In the same case if once we have a grant of probate, we then collect in the estate assets and hold them on client account until they are paid out to the beneficiaries after the creditors are paid. We will prepare tax returns for the estate as necessary and accounts for the estate showing the collection and payment out of the assets of the estate. This stage will take around three months (subject to the completion of the sale of any property assets) and is likely to cost around £3,000 plus VAT.

The foregoing is an indicative example and before commencing work on any appointment we will be able to provide both fee and time estimates based on the size and complexity of the estate.  We will keep you up to date through our work both as to fees and the likely timescales.

• We are Tax Specialists

At Barnes Roffe we specialise in tax, so you can be confident that you will pay only the minimum amount of tax that needs to be paid from the estate. We will look into the inheritance tax, income tax and capital taxes, calculate the overall tax liabilities of the estate and we can also work with the beneficiaries to set in place plans to minimise their future tax burdens.

• We offer a personal, confidential service

We understand what a difficult time this is for family and loved ones. You can be confident that we will be discreet and understanding and that you can trust us to take away the administrative burden from you as much as we can and complete the probate process as quickly and painlessly as possible.

• ICAEW Compensation fund Complaints

Whenever we engage with a client, we specify a partner to whom you are able to complain if you are not satisfied in any way with our work.  In addition, you can complain to the ICAEW How to make a complaint | ICAEW or to the legal ombudsman Bring your complaint to us | Legal Ombudsman .  Our engagement letter will set out further details.

As with all our work we have professional indemnity insurance and in the event that you have a claim against the firm and the ICAEW has a compensation scheme in respect of probate work ICAEW Probate Compensation Scheme arrangements | ICAEW

Contact Us

For a free probate consultation, please call the office most convenient for you, or fill in the contact form and we will call you to discuss how best we can help.